Dear Mr. Berko: I’ve got a bug in my ear telling me to invest in water utility stocks. My parents live in Flint, Mich., and my brother recently moved to Pensacola, Fla., and had to buy a water purifier. He says Pensacola has the worst water quality in the country. There are horror stories about water quality in Las Vegas, Detroit, Chicago, Omaha, Houston, San Diego and hundreds of small cities. I’ve got a $70,000, 1.2 percent certificate of deposit coming due next week and I’d like to invest that money in a group of water utility stocks as a long-term investment. Would you pick out a portfolio for me?
— H.A., Erie, Pa.
Dear H.A.: That’s a smart bug, and I think you’d do well to listen to it.
America’s water crisis goes well beyond the intolerable problems in Flint, throughout which ugly neurotoxins were spread. Since 2014, according to the Environmental Protection Agency, 41 states have reported action-level exceedance, meaning that higher-than-acceptable levels of contaminants are in the drinking water. Waterborne disease outbreaks have become common. Between 2002 and 2014, more than 30,000 cases of Legionnaires’ disease, a waterborne respiratory disease, were reported, and hundreds of beaches around the country have been closed because of polluted water. According to the EPA, as many as 63 million Americans from California to New York have been exposed to unsafe water more than once in the past decade. In that decade, the EPA reported nearly 700,000 water quality and monitoring violations. The American Society of Civil Engineers estimates that our municipal water systems must invest more than $1 trillion in the next 20 years to keep our water safe.
There are about 102,000 different municipal systems providing water to Americans. This industry is dreadfully fragmented and dangerously short of funding, and the underground infrastructure is rotting. There are 245,000 water main breaks a year. About 7 billion gallons of water is lost annually, and more than a million miles of underground piping needs to be replaced. Sadly, most cities lack the money to purchase the equipment and pay for the labor needed to replace old pipes. And this benefits the nine publicly traded water utilities, which, over the next dozen years, will absorb numerous smaller municipal systems. Because there’s grim inefficiency and redundancy in smaller municipal systems and because they lack the financing to maintain clean water standards, their purchase by public water utilities with access to technology and capital could be a Golconda for smart, patient investors.
